Correlation Between Montauk Renewables and Newpark Resources

Can any of the company-specific risk be diversified away by investing in both Montauk Renewables and Newpark Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Montauk Renewables and Newpark Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Montauk Renewables and Newpark Resources, you can compare the effects of market volatilities on Montauk Renewables and Newpark Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Montauk Renewables with a short position of Newpark Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Montauk Renewables and Newpark Resources.

Diversification Opportunities for Montauk Renewables and Newpark Resources

-0.65

Correlation Coefficient

Montauk Renewables  Newpark Resources

Excellent diversification

The 3 months correlation between Montauk and Newpark is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Montauk Renewables and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources and Montauk Renewables is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Montauk Renewables are associated (or correlated) with Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Montauk Renewables i.e., Montauk Renewables and Newpark Resources go up and down completely randomly.

Pair Corralation between Montauk Renewables and Newpark Resources

Given the investment horizon of 90 days Montauk Renewables is expected to generate 2.11 times more return on investment than Newpark Resources. However, Montauk Renewables is 2.11 times more volatile than Newpark Resources. It trades about 0.29 of its potential returns per unit of risk. Newpark Resources is currently generating about -0.38 per unit of risk. If you would invest  391.00  in Montauk Renewables on October 8, 2024 and sell it today you would earn a total of  103.00  from holding Montauk Renewables or generate 26.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	52.63%
Values	Daily Returns

Montauk Renewables  vs.  Newpark Resources

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Montauk Renewables is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Newpark Resources

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Newpark Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Newpark Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Montauk Renewables and Newpark Resources

The main advantage of trading using opposite Montauk Renewables and Newpark Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Montauk Renewables position performs unexpectedly, Newpark Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Newpark Resources will offset losses from the drop in Newpark Resources' long position.

The idea behind Montauk Renewables and Newpark Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.